Gill Capital Partners Late-September Update
To all of our friends, clients and partners, welcome to fall, which officially began on September 22nd. The changing season is indifferent to our current state of affairs, bringing us shorter days, changing leaves, cooler temperatures, football, and all things pumpkin spice. However, the comfort normally found in these fall traditions is fleeting, as a more solemn undertone driven by the global pandemic and political and civil unrest continues to impact our daily lives. With the election less than two months away, everyone is bracing for a contentious, unsettled final quarter of the year. School is back in session, though for most it feels far from normal. To all of the parents, grandparents, and teachers who are doing their best to educate our children under these difficult circumstances, many while doing double duty working and teaching, thank you! Before heading into the weekend, we wanted to send an overview of recent happenings in the world of economics and finance. But first, a bit of humor…
Sample home school schedule for 2020:
10:15 – Wake
10:17 – Cake for breakfast
10:30 – Fight with kids about what they are supposed to do today
10:40 – Try to figure out remote learning plan and software while kids play video games
12:00 – 1st Nap
1:00 – Healthy lunch (or ice cream)
1:30 – Fight with kids about what they are supposed to do today
3:30 – “Field Trip” to the liquor store
4:00 – 2nd nap – Dad
5:00 – Reading time or watch Netflix
6:00 – Rush to email teachers pictures of half-finished assignments from last week
Market Update – The change in seasons has also ushered in a very different tone for the markets. The markets have been moving lower since putting in recent and, in many cases, all-time highs on September 2nd. Since then, U.S. stock markets have been moving consistently lower. As of this writing, the S&P 500 is down about 10% from its recent high and is now roughly flat for the year. The high-flying NASDAQ, which had been leading the charge higher since March, is down a little more than 13% since its early September high, though it remains in solid positive territory for the year. This correction should not be a surprise to anyone, and certainly isn’t to us, as it is long overdue. What precipitated this correction? While this type of move should be and was anticipated, there are a few tangible changes in the underlying environment that we can look to as catalysts.
Government Stimulus, Politics & RBG – The second round of government stimulus was looking like a long shot before the passing of Ruth Bader Ginsburg (RBG). The unlikely timing of RBG’s passing has had an effect akin to pouring gasoline on a fire in the middle of a windstorm, further polarizing our nation. This surprise event all but eliminated any probability of Congress passing a second round of stimulus prior to the election, or even this year, as all hands are now on deck to either support or block President Trump in filling her vacant seat. A lot is at stake; if Trump is able to push through a nomination, we would then have the most conservative make-up 0f the court since the 1950s. The market was hoping for more government stimulus before year-end, and that now appears unlikely.
Election – With the election roughly 6 weeks away, the likelihood of a contentious election and the possibility that it will not be settled on Election Day loom large. Remember, markets don’t care all that much who wins the election, but really dislike uncertainty. We are entering possibly the most uncertain election period in memory. Traders and investors are looking to the election as a source of significant volatility, and as such have placed historic hedges on and around the election. In fact, it is the most heavily hedged event in history in the options markets, making it also the most expensive event to hedge against on record. What this means is that the market is anticipating some pretty incredible fireworks around the election….
Coronavirus, School, Vaccines – The final catalyst of the past few weeks has been the difficulty restarting school in the current environment. Many universities and high schools have seen spikes in cases, driving disappointing transitions to remote learning. The hope for school restarting this fall has been tempered by the reality that we are still in a global pandemic and fears that fall and winter are going to be challenging. While there is hope that a vaccine will be available at some point and there is evidence that trials are progressing well, the realization is setting in that the vaccine may not be a silver bullet or available as soon as many had hoped.
These catalysts, combined with near historic market valuations, go a long way in explaining the recent volatility. As we’ve said many times, this market was long overdue for a correction. From here, we do not know whether it will go materially lower or quickly resume its upward trajectory; that is pure speculation. From a long-term perspective and on a more positive note, we would offer that the current backdrop, as confusing as it may be, is very supportive for equities. Why? Stocks love low interest rates, government stimulus and a Federal Reserve that is on their side. So, while the market may not seem overly attractive at the moment, it is still capable of delivering meaningful long-term returns for those who can ignore the volatility.
We continue to rebalance client portfolios in order to optimize our holdings in the current environment.
We hope everyone has an excellent weekend - get out and enjoy the changes fall is bringing!
As always, please let us know if you have any question or concerns, or if we can provide assistance with any other financial planning matters including education, taxes, insurance or estate needs.